1 V2(ST)/41/RA/A-IV/2011
ORDER-IN-APPEAL
The Assistant Commissioner, Service Tax Division-III, Ahmedabad (hereinafter referred to as “the appellant”), authorized by the Commissioner, Service Tax, Ahmedabad vide Review order No. 33/2011 issued from F.No. STC/RRA/Ref-135/Div-III/11-12 has filed an appeal on 09.12.2011 against the Order-in-Original No. STC/Ref/69/Nimbaram-AC/Dn-III/11-12 dated 05.09.2011received on 07.09.2011 (hereinafter referred to as “the impugned order”) passed by the Assistant Commissioner, Service Tax, Division-III, Ahmedabad (hereinafter referred to as “the adjudicating authority”). In this case M/s E-Clinical Works India Pvt. Ltd., 4th floor, Venus Atlantic, 100Ft Road, Prahladnagar, Ahmedabad (hereinafter referred to as “the appellant-1”), has filed an appeal on 13.12.2011 against the Order-in-Original No. STC/Ref/69/Nimbaram-AC/Dn-III/11-12 dated 05.09.2011.
2.The facts of the case, in brief, are that M/s E-Clinical Works India Pvt. Ltd., 4th floor, Venus Atlantic, 100Ft Road, Prahladnagar, Ahmedabad (hereinafter referred to as “the respondents” as well as appellant-1) is registered with the Service Tax department under the category of “Business Support Service” and are holding Service Tax registration No. AABCE6639FSD002. The respondents filed a refund claim of Rs. 490721/- on 25.04.2011 (received on 20.05.2011) for the period from 01.01.2011 to 31.03.2011 in terms of Notification No. 05/2006-CE(NT) dated 14.03.2006 (as amended time to time) for refund of unutilized CENVAT credit.The adjudicating authority sanctioned Rs. 446946/- out of the total claim of Rs. 490721/- thus, reject the claim for Rs. 43775/- for service as True Innovation vide the impugned order.
3.Being aggrieved with the impugned order the appellants have filed the appeals. The grounds of appeals are as under:-
3.1The appellant contended that receipt of payment of out put servicein Convertible Foreign Exchange is a vital condition in term of Appendix-I to the Notification No. 5/2006 CE(NT) dated 14.03.2006 and procedure laid down in the Export of Services Rules,2005. In the instant case, respondent have received part payment not the full amount. As statement submitted by them for the period from 1/2011 to 03/2011, It was observed that the total billed amount was $ 9,47,088(Rs. 42712626/-).Out of the said billed amount they have received amount of $ 5,99,226/- ( Rs.26742879/-) only, thus there is an outstanding amount yet to be received of $ 347862/- (Rs. 15969747/-) for the said period. Bank statement submitted by the claimant does not reflect that any further payment towards the bills raised during the period from 1/2011 to 3/2011 has been received. In this case export of services can be considered only for the amount which has been received in Convertible Foreign Exchange i.e only Rs. 26742879/- The amount which has not been received in Convertible Foreign Exchange towards the out put services provided out side India i.e, Rs 15969747/- can not be considered as service ‘exported’ in terms of the procedure laid down in the Export of Services Rules,2005 so as to avail the benefit of Notification No. 5/2006 CE(NT) dated 14.03.2006. Applying the formula given under said Notification maximum admissible refund will be as under:-
a)Total Turn Over during the given period(TTO):- Rs 42712626/-
b)Total Export Turn Over during the given period(ETO):- Rs 26742879/-
c)Total Cenvat credit Availed during the given period(TCC):- Rs 446946/-
Maximum refund allowable= TCCXETO/TTO
446946X26742879/42712626= Rs.279838/-
3.2The appellant contended that in view of the above it appears that maximum admissible refund was only Rs. 279838/- whereas sanctioning authority has erroneously sanctioned Rs. 446946/- thus they have sanctioned or paid excess refund of Rs 167108/-to the respondent.
3.3The Appellant-1 contended that they have arranged its Annual Day Function at Starz Club wherein top officials of their company had come to encourage staff of Ahmedabad office. It was not a recreational activity type program but more of a business meet and recognition of the contribution of the employee in the up liftment of the company. The whole program was conducted with main aim of moral boosting for the employee of the company as whole BPO industry is facing so many problems such as health and psychological problem, stress management problem, repetitive nature work problem, sleep disorder problem, family and social problem. In such circumstances and working environment it needs of some activity which keep moral high of the employee,keep confidence in the company and create feeling that their future prospectus is bright in the company. It is an activity, which required maintaining quality and efficiency of the output service. In respect of the said Notification, our explanation and nature of work isjustifying the nexus between input and output service.
4.Personal hearing in the case was granted on 17.01.2012 wherein Shri C J Rajpara on behalf of the claimant appeared before me and stated that formula prescribed vide Notification No. 05/2006-CE(NT), dated 14.03.2006 read with rule 5 of the Cenvat Credit Rules,2004 is not applicable in their case as they are 100% Export Oriented Unit. They have no outstanding amount. They have received entire amount. He cited Board’s Circular 120/01/2010-ST dated 19.01.2010, which stated that the formula is not applicable for 100% EOU/STPI units. Hence, he requested to reject the department’s appeal. Further, he stated that the function in the Starz Club was to motivate the employee by the Top Officials. Hence, it is concerned to the business and hence they are entitled for the credit. The expenditure is included in the cost of their final service. Further, such meetings boost moral of the employees and increase the output. Hence they are eligible for the refund of input service.
DISCUSSION AND FINDINGS
5I have carefully gone through the facts of the case on records, grounds of appeal in the Review Order and written submission as well as oral submissions made by the respondents/appellant-1 at the time of personal hearing.
6.I find that the appellants (the Service Tax Department) has filed the appeal against refund order passed by the Assistant Commissioner, Service Tax, Division-III, Ahmedabad, on the ground that theClaimant has filed refund claimin terms of Notification No. 05/2006-CE (NT) dated 14.03.2006. The receipt of payment of out put servicein Convertible Foreign Exchange is a vital condition in term of Appendix-I to the Notification No. 5/2006 CE(NT) dated 14.03.2006 and procedure laid down in the Export of Services Rules,2005.The appellant contended that the claimant has raised total bill for Rs 42712626/-, out of which they have received amount of Rs 26742879/- only. Thus, out standing amount not received was Rs. 15969747/-. Hence, Export of Services can be considered only for the amount which has been received in Convertible Foreign Exchange i.e Rs. 26742879/-.The amount which has not been received in Convertible Foreign Exchange towards the out put services provided out side India i.e Rs 15969747/- can not be considered as service ‘exported’ in terms of the procedure laid down in the Export of Services Rules,2005 so as to avail the benefit of Notification No. 5/2006 CE(NT) dated 14.03.2006. As per the formula given under said the Notification, maximum admissible refund to the respondent will be of Rs 279838/-. The adjudicating authority has accordingly sanctioned excess refund of Rs. 167108/- which is liable to be recovered.
7.I find that the respondent has submitted copies of Bank Realization Certificates which confirmed that they have no outstanding amount. Hence, the respondent has received full amount in Convertible Foreign Exchange towards the out put services provided out side India. Further, the Boards Circular 120/01/2010-ST dated 19.01.2010 has clarified that the formula prescribed vide Notification No. 05/2006-CE(NT), dated 14.03.2006 read with rule 5 of the Cenvat Credit Rules,2004 is not applicable for 100% EOU/STPI units. Therelevant para of said the Circular is reproduced as under:-
3.3 Quarterly refund claims [para 2(d) above] :
“As regards the quarterly filing of refund claims and its applicability, since no bar is provided in the notification, there should not be any objection in allowing refund of credit of the past period in subsequent quarters. It is possible that during certain quarters, there may not be any exports and therefore the exporter does not file any claim. However, he receives inputs/input services during this period. To illustrate, an exporter may avail of Rs. 1 crore as input credit in the April-June quarter. However, no exports may be made in this quarter, so no refund is claimed. The input credit is thus carried over to the July-September quarter, when exports of Rs. 50 lakh and domestic clearances of Rs. 25 lakh are made. The exporter should be permitted a refund of Rs. 66 lakh (as his export turnover is 66% of the total turnover in the quarter) from the Cenvat credit of Rs. 1 crore availed in April-June quarter. The illustration prescribed under para 5 of the Appendix to the notification should be viewed in this light. However, in case of service providers exporting 100% of their services, such disputes should not arise and refund of Cenvat credit, irrespective of when he has taken the credit, should be granted if otherwise in order. Such exporters may be asked to file a declaration to the effect that they are exporting 100% of their services, and, only if it is noticed subsequently that the exporter had provided services domestically, the proportional refund to such extent can be demanded from him.”
8.A reading of the Circular indicates that the proportional Credit is to be refunded by applying the formula prescribed in Notification No. 5/2006 when the Service provider has domestic services as well. In this case, the respondent is a 100% EOU/STPI Unit, exporting all their services. They have no domestic service. Then, as per the Board’s Circular cited above, the respondent are eligible for the refund of accumulated credit lying unutilized during the period 01.01.2011 to 31.03.2011. In view of the above, I up hold the order of the adjudicating authority sanctioning the refund of Rs. 446946/-. Hence, I reject the department’s appeal.
9.Regarding the appeal filed by the respondent, I find that the adjudicating authority has disallowed the refund to the extent of Rs. 43775/- as it pertains to Service Tax paid towards dinner party organized at Starz Club. The respondent stated that it was part of a business meet. In BPO industry such parties are required to boost the morale of the employees. It increases their efficiency and output of their service. Hence, they requested to allow the refund of Rs. 43775/-.
10.I find that Board Circular 120/01/2010-ST dated 19.01.10, has clarified this issue.The relevant para of the said Circular is reproduced as under:-
3.1.2 Therefore, the phrase, “used in” mentioned in Notification No. 5/2006-C.E. (N.T.) to show the nexus also needs to be interpreted in a harmonious manner. The following test can be used to see whether sufficient nexus exists. In case the absence of such input/input service adversely impacts the quality and efficiency of the provision of service exported, it should be considered as eligible input or input service. In the case of BPOs/Call Centres, the services directly relatable to their export business are renting of premises; right to use software; maintenance and repair of equipment; telecommunication facilities; etc. Further, in the instant example, services like outdoor catering or rent-a-cab for pick-up and dropping of its employees to office would also be eligible for credit on account of the fact that these offices run on 24x7 basis and transportation and provision of food to the employees are necessary pre- requisites which the employer has to provide to its employees to ensure that output service is provided efficiently. Similarly, since BPOs/Call Centres require a large manpower, service tax paid on manpower recruitment agency would also be eligible both for taking the credit and the refund thereof. On the other hand, activities like event management, such as company-sponsored dinners/picnics/tours, flower arrangements, mandap keepers, hydrant sprinkler systems (that is, services which can be called as recreational or used for beautification of premises), rest houses etc. prima facie would not appear to impact the efficiency in providing the output services, unless adequate justification is shown regarding their need.
11.The Circular clearly clarifies that activities such as company sponsored dinners are in the nature of recreational activities. Hence, they are normally not considered as ‘Input Service’ eligible for credit. However, if the party proves that absence of such service would affect the efficiency of the out put service, then it can be considered as an ‘input service’. I find that there is no nexus between the dinner and quality of out put service. It is only recreational activity. It would no way affect the efficiency of output. The respondent has not produced any evidence that the absence of such dinners would affect the efficiency of their employees. They have simply made a claim, which alone is not sufficient to conclude that absence of such dinner would affect the output service. Hence, the refund of Service Tax paid on such dinners cannot be allowed as it cannot be considered as an eligible ‘Input Service’. Hence, I hold that the adjudicating authority has rightly denied the refund of the same.
ORDER
12.In view of the above discussion, I uphold the impugned order passed by the adjudicating authority and reject the appeal filed by the appellants.
Sd/- (27.02.2012)
( K. ANPAZHAKAN )
COMMISSIONER (APPEAL-IV)
CENTRAL EXCISE, AHMEDABAD.
Date : .02.2011
ATTESTED
(P.C.RATHI)
SUPERINTENDENT (APPEAL-IV),
CENTRAL EXCISE, AHMEDABAD.
BY R.P.A.D.
M/s E-Clinical Works India Pvt. Ltd., 4th floor, Venus Atlantic, 100Ft Road, Prahladnagar.
Copy To:-
- The Chief Commissioner, Cen0tral Excise, Ahmedabad zone, Ahmedabad.
- The Commissioner, Service Tax, Ahmedabad.
- The Assistant Commissioner, Service Tax, Division-II, Ahmedabad.
- The Assistant Commissioner, System Service Tax-Ahmedabad.
5.Guard File.
6. P.A. File.
7. V2(ST)250/A-IV/2012
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